Inland Revenue's property sold to company in tax haven

The Inland Revenue yesterday admitted that it sold its entire property portfolio of 600 buildings to a company based in a tax haven, despite a Treasury crackdown on tax dodges in offshore islands.

It said an announcement last year that the properties had been sold and leased back from a UK company was made in error. It confirmed the deal had been signed with a firm that was based and paid tax in Bermuda.

The Chancellor, Gordon Brown, who headed the tax campaign, is likely to come under pressure to explain how Britain's main tax raising agency came to sign the deal given the government's belief that havens shield companies and wealthy individuals from paying taxes in Britain.

Officials played down the significance of the admission, claiming the contract represented the best value for the taxpayer. A spokeswoman said savings would flow from the way the buildings are managed. All payments by the Inland Revenue to the company would be taxed. "Neither the Inland Revenue nor customs and excise would have entered into an arrangement that was in any way at odds with the letter or spirit of the UK fiscal regulations," she said.

The revenue agreed an arrangement in March 2001 with the UK-registered Mapeley Limited that involved transferring the "ownership and management" of the estates.

Offcials omitted to say the deal was split between a company called Mapeley Steps Contractors Limited, which was due to be paid for maintaining the revenue's offices, and Mapeley Steps Limited, a Bermuda-based company which bought the buildings for £220m.

Both companies are owned by Mapeley Holdings, a property company part-owned by George Soros and US investment company Fortress In vestment. Mr Soros, a billionaire speculator, gained notoriety when he made £1bn betting against the pound when Britain quit the exchange rate mechanism 10 years ago.

The chief executive of Mapeley Steps Limited, Robin Priest, told BBC News Online the benefits of the company's tax position would be handed back to the government through a lower lease charge each year.

The BBC reported that Mapeley Contractors had received payments from the Inland Revenue of £136m in the last nine months of 2001. The payments, however, failed to prevent the company reporting a £12m loss for the year. Crucial to its financial position was a transfer payment of £81m to the Bermuda based Mapeley Steps.

The revenue refused to discuss whether this payment would allow the company to escape UK corporation tax. The contract is likely to be scrutinised by the national audit office.